Health insurance

Disability insurance, also known as disability income insurance or disability income protection, is a type of insurance coverage that provides financial protection to individuals in the event they become disabled and are unable to work due to illness or injury. Disability insurance is designed to replace a portion of the insured person’s income, helping them maintain their financial stability and cover living expenses while they are unable to work.

There is nothing more important to your survival than your ability to earn a living. Your retirement accounts don’t matter if you can’t fund them. Your investments won’t appreciate properly if you can’t contribute. You can’t pay your mortgage. You can’t feed your family. Income is what holds everything together. Disability insurance protects that income. That’s why many people call it income protection insurance.

How is Disability Insurance Different From Workers’ Compensation?

Workers comp only pays you if something happens to you on the job site. That’s it.
Whether it’s fighting through chemo or recovering from a car accident, that can leave families stranded.

What are my odds?

If you are a millennial, you have a 1 in 4 chance of becoming disabled during your working years. It’s probably something temporary, but you never know.

If I’m disabled, don’t I have disability coverage through the state or social security?

Some states (like California) have disability coverage for some people. The problem is that you have to be completely disabled. Same with social security disability. To qualify for those benefits, you cannot have a chance of recovery.

Plus the payout is often minicsule and difficult to survive on.

The Most Common Reasons for Disabilities

When most people think of disabilities, they think paralyzed people. In truth, that’s pretty far down the list.

According to WebMD, some of the most common causes of disability are the following:

• Arthritis
• Back Pain
• Heart Disease
• Cancer
• Depression
• Diabetes

Surprising, right? Look at how this compares to the top reasons for disability insurance claims.

• Musculoskeletal/connective tissue disorders (30.7%)
• Disorders of the nervous system and sense organs (14.2%)
• Cardiovascular/circulatory disorders (12.1%)
• Cancer (9.0%)
• Mental Disorders (7.7%)

According to the Council for Disability Awareness, illness causes 90% of disabilities as opposed to accidents. That means there is a high chance that your worker’s comp isn’t going to cover it.

How a Disability Insurance Policy Works

There are a ton of parts that go into a disability insurance policy. Some offer more bang for their buck than others, and we will discuss that in each section. Please keep in mind that these are opinions based on experience. Use your judgment on if this matches your situation.
Benefit Period

The benefit period is how long your policy will pay you for each disability. The typical lengths are 2 years, 5 years, and to age 67.
Keep in mind that the average disability lasts around 7 years.
Benefit periods count for one particular reason. Yet they can be invoked multiple times. Let’s say Bob has skin cancer with a 5 year benefit period. He is out for 2 years, recovers then goes back to work. If in another 10 years he develops prostate cancer, he can go on claim for another 5 years.

Often times, insurance products will protect against a specific loss, such as when a property and casualty insurance plan reimburses the policyholder for the value of stolen property. However, in the case of disability insurance, this compensation relates to the lost income caused by a disability.
For example, if a worker earned $50,000 per year prior to becoming disabled, and if their disability prevents them from continuing to work, their disability insurance would compensate them for a portion of their lost income provided that they qualify. In this sense, disability insurance essentially covers the opportunity cost of the now-disabled worker.

In practice, there are many conditions that a policyholder must satisfy in order to receive these payments. This is particularly true in regard to the U.S. Social Security System. To qualify for government-sponsored disability insurance, applicants must prove that their disability is so severe that it prevents them from engaging in any type of meaningful work at all.
By contrast, some private plans only require the applicant to demonstrate that they can no longer continue in the same line of work that they were previously engaged in. The Social Security System also requires applicants to demonstrate that their disability is expected to last for at least 12 months or that it is expected to result in death.

As with all types of insurance, disability insurance plans will carry more expensive premiums if their terms and conditions are more favorable to the policyholder. Conversely, plans with less generous terms will typically carry lower insurance premiums. Some of the key features that affect insurance premiums in disability insurance plans include the length of the elimination period, which is the length of time that the applicant must wait after becoming disabled before they can begin receiving benefits; the benefit period, which is how long those benefits continue to be paid; and how strict the definition of “disability” is under the policy.

Here are key features and aspects of disability insurance

1. Income Replacement: Disability insurance serves as a form of income replacement. If the insured person becomes disabled and meets the policy’s definition of disability, the insurance company provides regular payments, often referred to as disability benefits or income benefits. These payments are intended to replace a portion of the person’s lost income.
2. Types of Disability Insurance:
   • Short-Term Disability Insurance: Short-term disability insurance typically covers disabilities that last for a relatively short duration, often from a few weeks up to six months. It provides a source of income during the early stages of a disability.
   • Long-Term Disability Insurance: Long-term disability insurance covers disabilities that extend beyond the period covered by short-term disability insurance. It provides income benefits for a more extended period, potentially until retirement age.
3. Definition of Disability: Disability insurance policies include specific definitions of disability. There are typically two main types:
   • Own Occupation: Under this definition, the insured is considered disabled if they cannot perform the duties of their own occupation or profession. This definition tends to be more favorable to the insured.
   • Any Occupation: This definition requires the insured to be unable to perform the duties of any occupation for which they are reasonably suited by education, training, or experience. It is often more restrictive and harder to qualify for benefits.
4. Elimination Period: Disability insurance policies may have an elimination period, which is a waiting period that must be satisfied before benefits are paid. Common elimination periods range from 30 days to 180 days. The longer the elimination period, the lower the premium.
5. Benefit Amount: The benefit amount is the monthly payment that the insured receives when disabled. It is typically a percentage of the insured person’s pre-disability income, often ranging from 50% to 70%. Some policies may offer a cost-of-living adjustment (COLA) to account for inflation.
6. Duration of Benefits: The duration of disability benefits varies depending on the policy. Short-term disability benefits usually last for a few weeks to several months, while long-term disability benefits can extend for several years or until retirement age, depending on the policy terms.
7. Premiums: To maintain disability insurance coverage, policyholders must pay regular premiums. Premiums are based on various factors, including age, health, occupation, income level, and the scope of coverage.
8. Group Disability Insurance: Many employers offer group disability insurance as part of their employee benefits package. Group policies often provide more affordable coverage than individual policies and may have less stringent underwriting requirements.
9. Supplemental Coverage: Some individuals choose to supplement their employer-sponsored disability insurance with individual disability insurance policies to ensure they have adequate coverage, especially if their income exceeds the limits of the group policy.
10. Taxation: The taxation of disability benefits can vary depending on whether the premiums were paid with pre-tax or after-tax dollars. Benefits are generally taxable if the premiums were paid with pre-tax dollars but may be tax-free if paid with after-tax dollars.

Summary

Disability insurance is an essential financial safety net that can protect individuals and their families from the financial impact of disability. It can help cover living expenses, medical bills, and other financial obligations when a person is unable to work. When considering disability insurance, individuals should carefully review policy terms, definitions, and coverage limits to ensure that the policy aligns with their specific needs and financial situation.

How USA Investment Solutions Can Help

Our primary goal is to assist families in safeguarding their financial well-being.  We partner with over 90 of the country's highest-rated life insurance companies.  We will shop them all to find you the lowest rate for the coverage and benefits, taking into account their individual needs and health status. We understand that each individual, business, and family requires a tailored life insurance solution. Our mission is to assist you in discovering the perfect plan for your needs. or complimentary quotes and consultations, please reach out to us s at (714) 794-2009, email us at info@usainvests.com, or fill out our contact form.  We're here to assist you, and there's no pressure to commit. Even if you're currently working with a professional, seeking a second opinion can offer valuable insights and perspectives.